On 28 September 2015, the FCA published policy statement PS15/23 Consumer credit – feedback on CP 15/6 and final rules and guidance (“PS15/23”). PS15/23 implements all but one of the rules proposed in CP15/6 and also makes some minor amendments to the FCA’s Handbooks.

When will the changes be effective?
The changes in relation to the FCA’s Handbooks COND, DISP, PERG, CONC 7.6 (exercise of continuous payment authority) and CONC 8.3 (information and advice) have been in force since 28 September 2015. The rest will be effective from 2 November 2015.

This e-alert sets out the top ten things a firm needs to know about PS15/23.

The Top Ten

1. Individuals who are guarantors or who provide an indemnity for certain consumer credit agreements but who are not customers must:

  • receive adequate pre-contractual explanations from either a credit-broker or independent legal professional. The lender must take reasonable steps to satisfy itself that an adequate explanation was provided;
  • be assessed by the firm with regard to the potential for the guarantor’s commitments relating to the credit agreement adversely affecting the individual’s financial situation; and
  • apply the FCA’s Consumer Credit Sourcebook (“CONC“) Chapter 7 rules on forbearance and the FCA’s Principles for Business 6 (treating customers fairly) and 7 (communications with clients).

2. Guidance on what is clear fair and not misleading will be made a rule, with further detail added. Financial promotions and communications will need to:

  • be clearly identifiable;
  • be balanced and not emphasise any potential benefits of the product or service without also giving a fair and prominent indication of any relevant risks;
  • not omit any important information, statements or warnings;
  • be sufficient for and presented in a way that’s likely to be understood by the average member of the group to which it’s directed or by which it’s likely to be received; and
  • present any comparison or contrasts in a fair, balanced and meaningful way.

3. The high cost short term credit (limited space) exemption will be removed, meaning thatHCSTC financial promotions will have to include a risk warning even where, owing to space constraints, it’s not reasonably practicable to include one.

4. The “prominence” requirement relating to representative examples and representativeAPRs, the content of quotations and pre-contractual explanations will be the subject of new guidance to be contained in CONC 3.2.3G, 4.1.6G and 4.3.7G. The FCA explains that statements must be presented, in relation to other content, in such a way that it is likely that the average customer’s attention will be drawn to it.

5. Representative examples will need to be no less prominent (rather than more prominent as is currently the case) than any other information relating to the cost of credit and/or any indication or incentive triggering the representative APR.

6. Continuous payment authorities can be introduced without a modifying agreement if the customer is in default or arrears and the lender is exercising forbearance (a modifying agreement was previously required). This change is already in effect.

7. Where appropriate, firms should refer customers in default or in arrears difficulties to not-for-profit debt advice bodies. While this was always the policy intention behind the referral requirement in CONC 7.3.7G, this has now been clarified. Firms may in addition make referrals to other FCA-regulated firms with debt counselling permissions.

8. New guidance that firms carrying out debt counselling should consider the expected term of a recommended debt solution as part of their overall compliance with the FCA’s Principles for Business. Firms should have taken this approach already, so the new guidance is merely a reminder. This change is already in effect.

9. Joint borrowers must each receive appropriate pre-contract explanations.

10. Date of domain name notifications (CCR008 data) will be aligned with standard GABRIELreporting dates. The next quarter will end 31 December.

And one for luck…
Not-for-profit debt advice bodies may now provide information about the availability of complaints information orally at the first point of contact, with a further referral required in the first subsequent written communication (if relevant). This change is already in effect.